Roles & Definitions Flashcards by Jonathon Brand

Money Markets

Wholesale markets for commercial borrowers and lenders

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Capital Markets

For trading stocks and shares, fixed interest investments and derivatives

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Commodity Markets

For trading physical goods

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Foreign Exchange (FX) Markets

For trading foreign currency

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Insurance Companies

For insuring physical assets. These that provide capital to secure insurance policies and provide banking and investment management

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Investment Companies

These invest surplus funds for longer term gain

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Life assurance and Pension Companies

These invest their assets to meet long-term policyholder obligatoins

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Reinsurance Companies

Companies that provide security to diversify risk from insurance companies

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Investment Houses

These issue pool investments like unit trusts and open-ended investment companies (OEICs)

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Role of the European Central Bank (ECB)

Coordinate and control monetary policy and interest rates in the EU states using the common euro currency

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Role of Financial Stability Forum (FSF)

Coordinates national financial authorities, makes recommendations about the global financial system

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Role of the Financial Action Task Force (FATF)

Sets international standards on anti-money laundering

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Role of the International Organisation of Securities Commissioners (IOSCO)

Brings together the world’s securities regulators to set common standards

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Role of the International Association of Insurance Supervisors (IAIS)

Supervises and sets common standards for the international insurance sector

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Role of the International Swaps and Derivatives Association (ISDA)

Represents participants in the privately negotiated derivatives industry, including interest rate, currency, commodity, credit and equity swaps

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Role of The Bond Market Association (TBMA)

Represents firms trading fixed-income securities

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Define the International Securities Market Association (ISMA)

Trade association and self-regulating organisation, supervising markets in international debt

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Define the Prudential Regulation Authority (PRA)

Responsible for authorisation and prudential regulation of certain larger firms

Define the Financial Policy Committee

A committee set up within the Bank of England to monitor the UK economy

Define the Financial Conduct Authority

Regulator that has conduct and market responsibilities. Also authorises smaller firms such as financial intermediaries and mortgage brokers

Debt Consolidation

Negotiating a new loan to repay an existing loan or loans, often with a lower interest rate/monthly payment

Mortgage

A security offered in exchange for the loan (usually used to buy a home - the house is the security).

Capital & Interest Repayment

Monthly repayments include a sum to cover a contributions towards the repayment of capital, plus a sum to cover interest

Interest Only Repayment

Only the interest accruing on the loan is paid ad the outstanding capital remains the same

Capped Mortgage

Guaranteed interest rate will not rise above a given level for a certain period of the loan

Cap and Collar Mortgage

Interest rates stays below a limit (cap) but above another limit (collar) for a certain period

Discount Mortgage

Interest rate for an initial period is reduced by a set percentage

Euro (or other currency) Mortgage

Interest and capital designated in Euros (or other currency), usually to take advantage of lower interest rates

Equity-Linked/Shared Appreciation Mortgage (SAMs)

Lender takes a stake in the equity. Amount loaned is less than the amount advanced for the purchase

Fixed Interest Mortgage

Interest rate charged remains fixed for a given period (borrower risks interest drops vs a known liability).

Flexible Mortgage

Monthly payments can be varied/lump-sum capital repayments made at anytime. Builds a reserve that the borrower can withdraw from up to original mortgage amount.

Offset Mortgage

Mortgage and current account linked. Interest charged on net balance. More money in the current account reduces the mortgage.

Tracker Mortgage

Variable rate mortgage with a built in link that tracks interest against an index (e.g. LIBOR)

Lifetime Mortgage

A loan is taken out secured against the home

Roll-Up Mortgage

Interest is added to the loan. Client gets a lump-sum payment or a regular income and is charged a monthly or yearly interest that is added to the loan. Initial + interest is repaid on the sale of the house.

Fixed Repayment Lifetime Mortgage

Client gets a lump-sum, doesn't pay any interest. When home is sold, they pay a higher amount that they borrowed.

Interest-only Mortgage

Client gets a lump-sum, pays monthly interest on the loan (fixed or variable). Initial repaid on house sale.

Home Income Plan

Money borrowed used to buy an annuity (regular fixed income) Income pays interest on mortgage. Initial repaid on house sale.

Shared Appreciation Element

Lender has a share in the value of the home.

No Negative Equity Guarantee

Lender guarantees that the client never has to pay back more than the value of the home

Home Reversion Plans

Client sells all or part of the home in return for a cash-lump sum/regular income. Client is still allowed to live in the house under a lease.

Ijara

Monthly payments made towards buying the property are held by the firm and used to buy the home at the end of the agreement.

Diminishing Mushkaraka

Each payment made buys an extra slice of the firm's share. Client's share increases, firms decreases and so does rent paid for use of firm's share.